Revenue diversification and financial performance of savings and credit co-operatives in Kenya

• Savings and credit co-operative societies (SACCOs) with more diversified revenues experience returns that are more volatile.
• Other drivers of financial performance in SACCOs include size, capital base, loan to assets, leverage and cost to income ratio.
• Compared to unlicensed SACCOs, the study finds limited diversification benefits in licensed SACCOs.
• Smaller SACCOs benefit from revenue diversification as opposed to revenue concentration.

This study examines the influence of revenue diversification on the financial performance of 212 deposit-taking savings and credit co-operatives (SACCOs) in Kenya over the period 2008–2013. An analysis of other factors influencing the financial performance of SACCOs is carried out. The findings show that increased dependence on non-interest income is associated with higher returns. The study also finds that SACCOs with more diversified revenues experience returns that are volatile. According to the findings, SACCOs with less concentrated revenue streams are associated with higher volatility in returns. Other drivers of financial performance include size, capital base, loan to assets, leverage and cost to income ratio. The study provides empirical evidence on possible regulatory and size influences on the relationship between revenue diversification and financial performance. Compared to unlicensed SACCOs, the study finds limited diversification benefits in licensed SACCOs. Finally, the results show that revenue diversification is beneficial to smaller SACCOs. This implies that as SACCOs in Kenya grow, a cautious diversification strategy is necessary as it influences financial performance and the stability of returns.